Cryptocurrencies in Trouble Thanks to China
While we have discussed the rally of Bitcoin at length in recent weeks, it's important to note that there are always systematic factors in the market that will throw a wrench into the machine. The latest news impacting Bitcoin, and other cryptocurrencies, is that several financial regulators are cracking down on a fundraising method that currently uses cryptocurrencies as payment according to an article from Business Insider.
The initial decline of both Bitcoin and Ethereum (another cryptocurrency) was triggered by a crackdown on so-called initial coin offerings (ICOs) in Asia. ICOs are where startups raise money by issuing new digital currencies or tokens that can be traded online, and China recently announced a ban on ICOs declaring them illegal and South Korea also noted that they will be increasing the severity of the penalties for those looking to raise money with ICOs. This is not too unique though: the US ruled back in July that ICOs would not be banned but would be required to adhere to strict securities laws.
Ethereum was hit harder than Bitcoin during this whole ordeal, losing as much as 20% on Monday 9/4, having been worst hit by the ICO crackdown. The Ethereum blockchain is the most popular platform to use when hosting an ICO — it allows people to write "smart contracts" that will release new tokens to investors when a certain amount of ether, the digital currency that powers Ethereum, is received.
While Bitcoin wasn't impacted as badly (just impacted by default of being a cryptocurrency) there could be more declines on the way for ALL cryptocurrencies. China considers the crackdown a "huge deal" so I don't imagine that the volatility will disappear anytime soon.